Improving the quality of freight logistics Challenges for South Africa 12 th August 2009 Dr. Andrew Shaw Deputy Director General: Transport Department of Public Enterprises
Contents Globalisation of logistics Changing logistics practice Road Freight Rail Freight Intermodal connections Ports Lowering the cost of transport logistics in South Africa Growth in road and rail freight in South Africa Transnet infrastructure development to enhance logistics competitiveness Transnet s 5 year expenditure plans Transnet Freight Rail Partnerships for investment and business simplicity
Source : Dept. of Economics & Geography, Hofstra University, USA Globalisation of logistics Modal Split of International Trade in Goods ($ billion) 2000 2006 World s major container ports, 2005
Source: Rodrigue, J Dept. of Economics & Geography, Hofstra University, Presentation entitled Maritime Transportation and Inland Freight Distribution and DBSA statistics of port draught limitations *Note Only African ports used by scheduled container vessels of greater than 1500 TEU in size have been included Five Generations of Containerships First Generation (1956-1970) Length Draft TEU Converted Cargo Vessel Converted Tanker 135 m 200 m < 9 m 500 800 Maximum draught limit of selected larger ports* Second Generation (1970-1980) Cellular Containership 215 m 10 m 1,000 2,500 East London, Dar es Salaam, Luanda, Maputo, Libreville, Apapa, Abidjan Third Generation (1980-1988) Panamax Class 250 m 11-12 m 3,000 Doula, Tema, Dakar 290 m 4,000 Fourth Generation (1988-2000) Post Panamax 275 305 m 11-13 m 4,000 5,000 Durban, Walvis Bay, Port Elizabeth, Mombassa, Victoria, Port Noire Fifth Generation (2000-?) Post Panamax Plus 335 m 13-14 m 5,000 8,000 Port Louis, Lome, Cape Town
Scale Increases in Container Vessel Size World Fleet 100% 90% 11% 100/499 TEU Percentage of world fleet 80% 70% 60% 50% 40% 30% 20% 10% 11% 17% 6% 13% 27% 500/999 TEU 1000/1499 TEU 1500/1999 TEU 2000/2999 TEU 3000/3999 TEU 4000/4999 TEU >5000 TEU 0% 1991 1996 2001 2006 Year X% Indicates vessels on order in 2006 Based on Notteboom, T (2004) "Container shipping and ports: An overview and Duetshe Bank Research, 2006
Road Freight The emerging value proposition An example Part of Value Logistics Group Integrated logistics service provider in the industrial chemical distribution sector Single source services, based on Just In Time principle Intercity Express Road Freight Daily inter-city express road freight services to and from all main city centres National Transport Logistics Full truck load and part load consolidated road freight services to and from all main centres Specialized liquid bulk and semi bulk distribution National Warehousing and Distribution Fully palletized, high rise warehousing and storage facilities Computerized stock management Order processing and assembly Local, regional and national distribution Dangerous goods and general freight Air Freight National and international air freight services Supply Chain / 3PL and 4PL Services Fully resourced consultancy division Experienced analysts audit supply chain pipeline from procurement Customer Integrated Logistic Systems (ILS) provides efficiency and cost saving opportunities Supply chain managers control and manage the supply chain as a 4PL service provider Source : www.freightpak.co.za
Rail Freight A core component in integrated logistic supply Block train concept with capacity allocation to serve the supply chain needs of customers Track and trace with proactive customer information Quota booking meeting customer needs for punctuality, security Integrated rail sector solutions well aligned to: Automotive Industrial Technology Innovations Track and trace, Road semi-trailers on rail, Chemicals Container Make rail more attractive for palletised products, and Technology development in wagons, double stacking, chemical storage, rapid loading and unloading.
Intermodal port connections Enhanced terminal productivity with new equipment, stacking design and scheduling management Closer linkage between global shipping companies & ports, with specific transhipment terminal hubs around the globe Integrated intermodal terminals and distribution centres now finding a home in port Railport - Alternative to traditional rail sidings, provides focus for integration between rail and road network. In operation in Germany, Switzerland, Netherland, France, Denmark, Integrated planned intermodal terminals gateways close to main production centres, including: Customs facilities Weigh bridges 3 rd party logistics providers Freight forwarders Distribution centre services Warehousing and consolidated services In-port ASDA/Walmart distribution centre Teeside UK
Intermodal connections Example Graz Austria Success factors Large intermodal road rail transfer hub integrating existing 3Pl and 4PL companies, e.g. Panalpina, DHL, Schenker DB Work closely with Rail Cargo Austria but set up as separate company Strong link into European and East European rail network Integrated into major motorway network and close to major centers of production
Lowering the Cost of Transport Logistics in South Africa SA s cost of logistics amongst the highest in the world (between 15% and 16%) and reduces competitiveness in both the domestic and international market. Reducing the cost of logistics remains a core component of Transnet s mandate. It should be seen from two dimensions: Improving the quality and reliability of transport services (generalised transport costs), and Reducing the real monetary cost of transport. Weighted tariffs have increased by 12% in rail and 8.7% in Transnet Port Terminals (2007/08). Some rail tariffs increased by 20-38% in 2007/08 Actual tariff increases are well above the budgeted Corporate Plan and Shareholder Compact target. Rail volumes have remained static even during the period of high economic growth experienced from 2005 to 2008. This indicates a shift of traffic to road. The global economic downturn has placed considerable pressure on locally based companies and many have responded by reducing output. Transnet could contribute to the sustainability of trade by reducing transport related tariffs
Growth in road and rail freight in South Africa Source: The Fourth State of Logistics Survey 2007, CSIR
Road freight remains the backbone of the freight network
Transnet infrastructure development to enhance logistics competitiveness Based on national forecasts per cargo category : containers, automotive, major break bulk and dry bulk export commodities Provide port and rail infrastructure ahead of demand Provide capacity through operational efficiencies before infrastructure provision Focus on point to point services to increase efficiency Alignment with national road and electricity supply planning
Rail Planning Principles Align port developments and rail corridor developments Separate metro trains from freight lines (dedicated freight lines) Promote a hub to hub operating philosophy and enhanced operational efficiency Provide improved inter-modal infrastructure Maximize on advantages of network standardization Separation of core and branchline network Port Planning Principles Improved operational efficiencies leading to optimised infrastructure investments Enhanced Port specialisation: High value, cleaner commodities at Cape Town, Port Elizabeth & Durban, High volume commodities at Richards Bay, Ngqura & Saldanha. Link with dedicated heavy haul rail Improve sustainability & environmental responsibility Complement new port expansion with commercial development of obsolete port property
Transnet hub and terminals concept and proposed shift from road to rail Assumed Modal Shift (Road / Rail market share) Package Type Containers Vehicles Dry Bulk Break Bulk Liquid Bulk Current share 26% 6% 60% 24% 11% Target 2026 80% 80% 60% 24% 19%
Rail Network Investment proposal 2006 2010 2020 2030
Transnet Freight Rail Partnerships for investment and business simplicity Transnet Freight Rail (TFR) contributes 44% of Transnet s revenues but contributes only 28.1% of operating profit and yields the lowest return on net assets of all divisions, TFR s realistic market position needs reconsideration, highlighting the need for improvements in operational performance and Transnet s ability to implement a demand responsive investment plan for rail. The level of investment in TFR will not be sustainable into the future unless real volume growth is achieved, and sustained. Although the decline in GFB volumes was arrested in 2007/08 and 2008/09, the economic downturn has further reduced volumes. DPE supports Transnet s strategy to operate the Core Rail Network as a Vertically Integrated Railway. An appropriate balance between the health of the Transnet balance sheet, customer demand, and TFR s operational capability needs to be found. TFR needs to simplify its business to focus on providing efficient traction services and access to reliable core infrastructure and, in this way, improve margins through efficiency and growth, rather than tariff increases. Innovative ways in which new rail operators, customers and 3rd party Logistics Service Providers may be encouraged to invest in supporting infrastructure, rolling stock and the development of multi-modal supply chain based service offerings, need to be explored and implemented. Investment by customers and service providers results in greater commitment to using rail and relieves the strain on the balance sheet to access cash for the capacity expansion programs.
Conclusion There is a need to focus on stronger integration between South Africa and global supply chains Infrastructure and service levels should to be world-class in order to provide cost effective and efficient logistics solutions. SA needs to link into global trends in freight logistics The role of rail needs to be enhanced and developed as a credible alterative to road Transnet has a strong focus on infrastructure development and is focusing on improving service level efficiencies. The next step may be to enhance its logistics practice and consider innovative practices beginning to emerge worldwide The role of the hub in linking modes and production centers to the market is becoming an integral part of global logistics practice and should be integrated into the planning of South African road, rail and port infrastructure
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